Article

# On Creating and Claiming Value in Negotiations

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## Abstract

This paper presents a negotiation model that includes value creation. It shows that creative negotiation efforts tend to intensify toward the deadline, and that the deadline is determined endogenously by the tension between two motives, creating more value and claiming from existing value. When the parties can present misleading offers in order to claim rather than create value, the outcome in early negotiation rounds may display an impasse where any proposal is rejected without inspection, while negotiation activities such as value creation through sincere offers and inspection of clauses intensify toward the deadline.

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... Based on a survey of negotiation course students, negotiation practices are identified that deal well with the tension between claiming and creating value Bac (2001) Article Conceptual Develops a negotiation model that demonstrates the tension between creating value and claiming existing value as the negotiation deadline approaches Bacharach and Lawler (1984) Book Conceptual Develop a theory of bargaining and powerwhich incorporates impression and information management as central elements Fisher, Ury and Patton (2011) Book Conceptual/ practice oriented Discuss the fundamentals of negotiation and offer a guide to maximizing negotiation outcomes Kaufmann (1987) Article Conceptual Discusses the tension between value creation and appropriation and argues that relational norms may increase creation relative to appropriation Lax and Sebenius (1986) Book Conceptual Discuss the creation/appropriation tension and how managers can deal with it Neale and Bazerman (1992) Article Management/ practitioner oriented Discuss the effects of manager dispute framing on negotiation outcomes and suggest ways managers may avoid these framing effects Sebenius (1992) Article Conceptual Lays out the details of negotiation and negotiation analysisespecially its distinct characteristics relative to game theory RESOURCE BASED VIEW Alvarez and Barney (2004) Article Conceptual Discuss rent appropriation and appropriation mechanisms and use this basis to suggest an entrepreneurial theory of the firm Amit and Schoemaker Article Conceptual Discuss the factors and conditions that allow the firm to generate organizational rents from strategic assets Barney (1991) Article Conceptual Spells out a resource based view on strategy and discusses the four resource characteristics that generate sustainable competitive advantage Bowman and Ambrosini (2000) Article Conceptual ...
... In the negotiation stream, VA occurs within the interpersonal give and take leading to contract formation. Negotiation plays out in the setting of the meeting room as a sequence of discrete interpersonal bargaining encounters between buyer and supplier representatives (Bac, 2001;Kaufmann, 1987). Both value creation and appropriation are realized at the time of negotiation. ...
... Negotiation is dichotomized as the contrasting approaches of integrative and distributive bargaining. Integrative bargaining, associated with value creation, is characterized by open communication, learning, joint problem solving, exploiting areas with value potential, identifying corresponding exchanges of concessions, preventing conflict escalation, and channeling hostilities productively (Bac, 2001;Kaufmann, 1987;Lax and Sebenius, 1986;Sebenius, 1992). The rationale of integrative negotiation is to increase the pie or the value created in exchange. ...
Article
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Purpose - Value appropriation is a central, yet neglected aspect in business exchange research. The purpose of the paper is to generate an overview of research on active value appropriation in business exchange and provide the foundation for further research into value appropriation, as well as some initial guidance for managers. Design/methodology/approach - Literatures investigating value appropriation were identified by the means of a systematic review of the overall management literature. Findings - We provide an overview and comparison of the literatures and find that they apply diverse understandings of the value appropriation process and emphasize different mechanisms and outcomes of value appropriation. Research limitations/implications - Based on the literature comparison and discussion, in combination with inspiration from alternative business exchange literature, we propose four areas with high potential for future research into value appropriation: network position effects, appropriation acts and behaviors, buyer-seller relationship effects, and appropriation over time. Practical implications - Boundary spanning managers acting in industrial markets must master the difficult balance between value creation and appropriation. This review has provided an overview of the many managerial options for value appropriation and created knowledge on the effects of the various appropriation mechanisms enabling managers to secure company rents while not jeopardizing value creation. Originality/value - To our knowledge, this paper represents the first attempt at reviewing the management literature on value appropriation in business exchange. We provide overview, details, comparisons, and frame a research agenda as a first step towards establishing value appropriation as a key phenomenon in business exchange research.
... In contrast to research focusing on generation of outcomes, other research has focused primarily on the negotiation process (e.g., (Balakrishnan and Eliashberg 1995), (Zeng and Sycara 1998) and (Bac 2001)). The negotiation process refers to the events and interactions that occur between parties before the outcome and includes all verbal and non-verbal exchanges among parties, the enactment of bargaining strategies and the external and situational events that influence the negotiation. ...
... This could be explained by the fact that agents could create more value at later negotiation rounds based on what has been achieved in the previous rounds (Zartman and Berman 1983). (Bac 2001) builds a different analytic model and argues that deadline effect happens because the costs and benefits of negotiation efforts are not synchronized: while efforts are incurred in the negotiation rounds, the benefits are only realized after the final round. Third, the evolving BATNA (best alternative to negotiation agreement) is also behind agents trading-off behaviors. ...
Chapter
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Negotiation has been studied in different communities both scientific and communities of practice. The social sciences (see chapters by Martinovski, Albin and Druckman, Koeszegi and Vetschera, this volume for example) and the mathematical sciences have investigated different aspects of negotiation with different goals: the goals of the social sciences are to understand the factors and reasoning processes that underlie human negotiation behavior. The goal of the mathematical sciences is to formulate mathematical models that capture elements of negotiation. Further, the mathematical models can be divided into analytic models (economic, operations research etc) and computational models. The aim of the analytic models is to provide guarantees of their behavior, characterizations of optimality, or provide managerial guidance to optimize negotiation activity. The computational models aim to provide computational tractability through approximation algorithms and heuristics. Most crucially, the computational research aims to have the models implemented in autonomous processes, called agents, that are able to incorporate realistic factors of negotiation (e.g. argumentation, information seeking, and cognitive factors) and engage in negotiations in a decentralized manner. Such agent models promise to contribute to our understanding of human information processing in negotiation. Additionally, they could be used for decision support of human decision makers. In the long run, such models can even become substitutes for human negotiators. In this chapter we will provide a selective review of the most important works in the analytic and computational negotiation literature, point out some differences and synergies and provide pointers to open questions and future research.
... For a negotiator, failing to reach an agreement in previous negotiations is likely to lead to an impasse in the negotiator's subsequent negotiations (O'Connor, Arnold and Burris 2005). Misleading offers early in a negotiation by one party increases the likelihood of an impasse (Bac 2001). Researchers found that when the supervisors' expectations were greater than the subordinate negotiators' abilities, negotiations were more likely to end in an impasse (Wolfe andMurthy 2005-2006). ...
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This study contrasts the rate of impasse in genders in face-to-face negotiations for newly trained women and men. The empirical study analyzed negotiators’ negotiation impasse rates based on gender using a two-tailed t-test. The bargainers were involved in a series of ten high-stakes, zero-sum game negotiations. A total of 4,855 separate negotiations were examined. Overall, there were no statistically significant differences in the impasse rates of men and women The female rate of impasse was lower than the male rate of impasse, but without any significant differences, the results indicate that there are no gender differences in the abilities of negotiators to arrive at a deal.
... ii. Before negotiation begins, the negotiating parties may fix a deadline for negotiation or the number of negotiation rounds [24]. Based on this, it is assumed that the maximum number of negotiation rounds with contingent orders would be defined before starting the negotiation. ...
Article
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Quotations represent the initial phase in order acceptance/rejection (OA) decisions. Orders for companies remain contingent on demand until decisions are made which is a critical source of uncertainty. This paper proposes a method that can be used to simultaneously quote the due date and the price of each incoming order when the contingent orders exist. It utilizes probabilistic theory and incorporates some theories of negotiation such as the aspiration level and limit level to generate quotations. Instead of a single quotation, it can be used to generate multiple sets of quotations at the same aspiration level of manufacturer. Numerical example is presented to demonstrate the working mechanism, effectiveness and sensitivity of the proposed method.
... ii) There are many factors that affect the length of negotiation (Bac, 2001). Before negotiation begins, the negotiating parties may basically fix a deadline for negotiation or the number of negotiation rounds. ...
Article
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This paper proposes a method to quote the due date and the price of incoming orders to multiple customers simultaneously when the contingent orders exist. The proposed method utilizes probabilistic information on contingent orders and incorporates some negotiation theories to generate quotations. Rather than improving the acceptance probability of quotation for single customer, the method improves the overall acceptance probability of quotations being submitted to the multiple customers. This helps increase the total expected contribution of company and acceptance probability of entire new orders rather than increasing these measures only for a single customer. Numerical analysis is conducted to demonstrate the working mechanism of proposed method and its effectiveness in contrast to sequential method of quotation.
... More rounds of negotiation may increase the probability of reaching an agreement but require more time. According to Mehmet (2001) there are many factors that affect the length of negotiation. Basically, the negotiating parties may fix the deadline or number of rounds for the negotiations before negotiation begins. ...
... In the researched publications the information situation concerns the deadline of the negotiation [17], the price limit of the negotiation partner [15, 17], the utility of the negotiation result [15] , the resource constraints of the negotiation partner [15], the identity of the partner [37], his data and message formats [37], as well as his efficiency and trust values [37]. Solutions result from probability-based approaches [3, 17, 35], by fuzzy-logic [15] or through a dynamic database which contains current knowledge and information about the negotiation partner [37]. The articles [9, 66, 70] look exclusively at the risk aspect and address this aspect by means of probability-based approaches. ...
Article
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The following article is a dissertation project in progress paper. It shows the results of an empirical analysis of 74 publications in the fleld of automated ne- gotiations. The results show that most of the items (66) imply incomplete or uncertain information, but mainly related to the negotiation partner. Only 12 of them are related to the negotiation item. Despite the advantages of the argumentation-based negotiation (20, 45) there is no such model that implies incomplete or uncertain infor- mation related to the negotiation item. There is a need of research activities.
Article
Purpose This paper aims to present a review of articles on business negotiation published between 1995 and 2015. Design/methodology/approach This literature review is based on 490 articles on business negotiation. Findings When analyzing the conceptual underpinnings of this field, two paradigms emerge as dominant. The most prominent paradigm is a cognitive, psychological approach, typically relying on experiments and statistical testing of findings. The second dominating paradigm is a behavioral one, largely concerned with mathematical modeling and game-theoretical models. Practical implications Besides offering a description of the characteristics adhered to the business negotiation field, this paper will also suggest recommendations for further research and specify areas in which the research field needs further conceptual and empirical development. Originality/value This literature review serves to be the first representation of the characteristics adhered to the budding research field of business negotiation.
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I study the first-round separating equilibrium of a buyer-seller bargaining game, extended to allow for asymmetric information, strategically delayed offers and offers restricted to a portion of the good. When bargaining is over a consumption good, in equilibrium the "strong" buyer uses a restricted offer if his optimal consumption path is conservative relative to the "weak" buyer. A pure restricted offer may even be a costless, efficient signal. When the good is durable, a pure strategic delay is involved in signaling a strong bargaining position if the discount factor is high.
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We examine what happens if, as players bargain, they can exert costly effort to expand the set of possible proposals. With side payments, new ideas influence the size of the pie but not its division. The benefits of one player's creativity are shared with the other player, so effort is inefficiently low. Without side payments, new ideas do influence the distribution, so players inefficiently limit their search to ideas that favor them. Getting an idea makes an agreement more likely, but it also makes the other player's ideas less likely to be adopted. Consequently, effort can be either excessive or suboptimal.Journal of Economic LiteratureClassification Number: C78.
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The alternating offers bargaining game with two pies and incomplete information has a bargaining sequential equilibrium where the “strong” type of the informed player restricts his offer to one pie, leaving it to the other player to make an offer on the second pie. An offer on both pies comes only from the “weak” type of informed player. Hence, an issue-by-issue negotiation agenda may arise from signaling considerations.Journal of Economic LiteratureClassification Number: C78.
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This paper examines an infinite horizon bargaining model, incorporating five features: two-sided incomplete information (with potentially information-revealing strategies), an infinite horizon, uncertainly concerning the potential gains from trade, an illumination of interesting qualitative bargaining issues, and plausible (free from arbitrarily specified out-of-equilibrium conjectures) equilibria. These features, motivated in the paper, have powerful implications. A Nash equilibrium exists, and is generically both unique and sequential. Comparative static implications of variations in the game's specifications are developed. We find that natural indications of bargaining strength emerge from the model, and establish the intuitive result that an increase in a player's relative bargaining strength makes that player more likely to capture the gains from bargaining.
Bargaining with Two-sided Information: An Infinite Horizon Model with Alternating Offers
• K Andl Chaterjee
• Samuelson
A Model of Negotiations, NotBargaining, ” mimeo
• E Rasmussen